Wednesday, June 6, 2007


It could be argued that everyone is inherently greedy. Our history is littered with examples of people who got too greedy and tried cheating the system. Some have been successful (Barry Bonds) while others (Jeffrey Skilling, Paris Hilton) ended up paying the price. Martha Stewart, for example, had no reason to cheat besides greed. She was already particularly wealthy when she lied about insider trading. What drives greedy people to cheat? People cheat for all kinds of different reasons, some moral and some immoral. EBay (EBAY) is facilitating tens of thousands of people to cheat every year, and the ramifications could be exponential.

EBay has millions of users; many of whom purchase items in the market place and resale them on eBay for a profit. Are the sellers of these items keeping track of their cost basis and reporting the activity on Schedule C of their Form 1040? Unlikely. Do these eBay users even know that this income is taxable? Some pretty scary Q&A here. The tax repercussions for failing to include this income can be quite staggering. What is the intent of the individuals whom are not claiming the correct amount of income on their income tax returns? If the intent is malicious in nature then the offenders could possibly face criminal charges, but if the intent was incompetence then the offender would likely face penalties and interest.

The tax code is a trap for the wary and uninformed, but who is responsible for informing the users of eBay about their personal filing requirements. Should eBay be held reasonable for providing tax guidance to its users? Does a corporate structure have some inherent responsibility to report potential fraud to the government or IRS? Should sellers on eBay require sales tax to be withheld from sales? There are many questions that need to be resolved, but one thing that is certain is that the individual taxpayer is ultimately responsible for reporting the correct amount of income on their own return. Currently eBay does not provide any tax information on their web site and does not report activity to the IRS.

I read this quote yesterday that sums up this growing problem nicely: “The most important ways in which I think the Internet will affect the big issue is that it will make it more difficult for government to collect taxes.” (The late economist Milton Friedman)

No comments: